The shares of european airlines undergo a new pressure in early trading on Monday after the German company, Lufthansa has published the latest – and probably the most horrible – release of a series of warnings on the profits of the sector in recent weeks.
At 10: 30 am, Lufthansa (DE: LHAG) has lost 12% of its value, after the company announced that its subsidiary Eurowings would lose money this year because of overcapacity and persistent in the fierce competition in the sector is low-cost. He also said that its freight operations would be less profitable than expected. The revenue unit of the main brand Luthansa, with its long-haul flights more isolated, are now expected to fall during the year by “a small percentage to a number”. As a result, it reduced its expansion projects in this region and does not see that an increase in “marginal” of its capacity in the course of the next winter season.
The airline based in Frankfurt, said it had also set aside 340 million euros for a possible tax bill related to issues dating back to the age of 18.
The news caused another general revaluation of the sector: competitors low-cost airline have suffered most of the impact, on EasyJet (LON: EZJ) of 3.7%, Wizz Air (LON: WIZZ) of 2.6% and Ryanair Holdings PLC (LON: RYA) has lost 3.6 per cent, but Air France-KLM (PA: AIRF) has also lost 3.5% and International Airlines Group (LON: ICAG ), the parent company of British Airways and Iberia, dropped by 2.8%.
They have all under-performed the benchmark index Euro Stoxx 600 index, which had remained unchanged at 378,92 points. The German Dax lost less than 0.1%, while the uk FTSE rose just as modest at the beginning of the week, in the shadow of important meetings of the central bank.
The tax bill of Lufthansa has added an element of surprise to a tale of woe also predictable: the costs at Eurowings have also been higher than anticipated and the company announced that it would reveal “shortly” new cost-reduction measures; costs of fuel have increased at the same time the price of oil – to- Lufthansa now expects that the fuel bill of its group for the current financial year exceed 550 million euros (usd 615 million) the amount previously estimated; and the european economy has weakened (the Deutsche Bundesbank has lowered at the beginning of this month its growth forecast for 2019 in Germany, the domestic market of Lufthansa, only 0.6%).
The economic downturn is forcing european airlines to transport a short distance to pay a heavy price for having missed a golden opportunity to remove excess capacity from the market in 2017, when Air Berlin has collapsed. Instead, in a collective crisis of overconfidence, there was a struggle unworthy for a share of the market, in which Lufthansa was one of the parties guilty, buying most of the operations of Air Berlin at a reduced price of 210 million euros.
The consequences are now evident: the index STOXX Europe Total Market Airlines is down 13% year-on-year, more than any other sectoral index finger.